Progress in Russia/Ukraine peace talks has stocks moving higher Monday, even as investors navigate mixed signals in other markets that suggest near-term weakness in the global economy.
U.S. equity futures edged higher Monday, while Treasury bond yields remained active and oil prices slumped, as investors looked to navigate a series of signals suggesting slower near-term growth while pricing-in positive developments from peace talks between Russia and Ukraine.
Benchmark 10-year Treasury note yields traded above the 2.5% mark in overnight trading for the first time since 2019, while the yield on five year notes rose past 30-year bonds for the first time since 2006, another ‘inversion’ of the yield curve that suggests near-term recession pressures in the world’s biggest economy.
Part of that pressure is the result of the Federal Reserve’s aggressive stance on interest rate hikes as it seeks to tame the fastest inflation in forty years, with traders betting on half-point moves higher in the Fed Funds rate at the next three Fed meetings in May, June and July, according to the CME Group’s FedWatch forecasting tool.
That has the dollar index trading at the highest level against a basket of its global peers since May of 2020, and has helped push Japan’s yen to the lowest level against the greenback in more than seven years.
“This, at some point, is a dangerous moment for markets, as a steep back-up in treasury yields preceded every major bear market or market correct in recent decades, most infamously ahead of the 1987 crash, but also into early 2000, 2007 and 2018,” said Saxo Bank strategists.
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At the same time, China’s decision to introduce a two-phased, nine-day lock-down in Shanghai, one of it’s most populated cities, as part of an effort to control the ongoing surge in coronavirus infections, has pushed oil prices sharply lower in overnight trading, while adding to concerns over the impact on global supply chains.
WTI crude futures for May delivery were marked $5.47 lower in the overnight session and changing hands at $108.43 per barrel while Brent crude contracts for the same months were last seen $5.06 lower at $115.65 per barrel.
Even amid those moves lower, however, Bank of England Governor Andrew Bailey said the shock from surging energy prices this year will be the worst since the 1970s, and expects more pain to come.
In the near-term, however, investors will be more focused on the job market ahead of key releases on both the level of unfilled positions in the world’s biggest economy and what could be a crucial reading on new additions to close out the week.
Friday’s March non-farm payroll report is expected to show that American employers added a net new 475,000 jobs to the economy, with the headline unemployment rate holding at 3.8%. What may prove more pertinent, however, is the pace of gains in terms of average hourly earnings, which flatlined last month but could rebound sharply — adding to inflationary pressures — as companies race to fill the more than 11 million unfilled positions in the nation’s job market.
Meanwhile, Ukrainian President Volodymyr Zelenskiy has said he is will to compromise on the status of the Donbas region in eastern Ukraine, while adopting a ‘neutral’ stance in terms of territorial integrity, ahead of peace talks with Russia slated for later this week in Istanbul.
That progress offered a counterweight to off-script comments from President Joe Biden, who said during a speech in Warsaw that Russian President Vladimir Putin “cannot remain in power”, igniting the prospect of regime change that few U.S. allies are prepared to support.
On Wall Street, futures contracts tied to the Dow Jones Industrial Average indicating an 85 point opening bell gain while contracts linked the S&P 500, which is down 4.68% for the year, are priced for a 12 point gain and those linked to the tech-focused Nasdaq are looking at a 40 point move to the upside.
In terms of individual stocks, Apple (AAPL) – Get Apple Inc. Report shares slumped lower following a report from the Nikkei business newspaper that suggested the world’s biggest tech company is planning to cut some of its iPhone production rates.
Slowing demand, surging inflation and supply chain disruptions have combined to trigger a potential 20% cut in iPhone SE production, Nikkei reported, a level that translates to between 2 million and 3 million units next quarter.
Tesla (TSLA) – Get Tesla Inc Report, meanwhile, jumped more than 5% after the clean-energy carmaker said it will ask shareholders to vote on a proposal that would enable the group to execute a stock split.
In overseas markets, Europe’s Stoxx 600 was marked 1.1% higher in mid-day trading in Frankfurt, while a pullback in China stocks linked to the Shanghai lockdown capped gains for the region-wide MSCI ex-Japan benchmark in Asia, which was marked 0.11% higher heading into the close of trading.
